UPDATE 2-Clearwire spectrum auction interest dwindles-sources

Wed Jan 19, 2011 10:13pm EST

* Spectrum auction loses steam

* Clearwire, T-Mobile USA, Sprint talks remain active

* Clearwire needs more funding for network build (Adds details on auction)

By Nadia Damouni and Sinead Carew

NEW YORK, Jan 19 (Reuters) - Clearwire Corp's CLWR.O auction to sell wireless airwaves appears to have lost momentum, with big suitors bowing out except for T-Mobile USA, sources familiar with the matter said.

"You are down to a point where something is going to happen or not, with the logical party that is left," said one of the sources referring to T-Mobile USA.

T-Mobile USA has said previously that it is looking at multiple options for expanding the amount of wireless airwaves it can use, including a potential deal with Clearwire. The company declined further comment on Wednesday.

Clearwire, which is 54 percent owned by Sprint Nextel (S.N), is looking to raise billions of dollars in new funding to finish a high-speed wireless network it is building through either a sale of unneeded spectrum or an equity investment.

The company said in December that it had hoped to snag another round of funding by year-end or early 2011 with the potential for a spectrum sale of as much as $2 billion. [ID:nN06204356].

Negotiations between T-Mobile USA and Clearwire are ongoing over the spectrum purchase, among a number of other investment options, said one of the sources. Other remaining parties are only considering buying smaller amounts of the spectrum in regional areas, for a few hundred million dollars, said the source.

Some analysts had said they hoped T-Mobile USA would be ready to make an announcement about Clearwire at an analyst meeting scheduled for Jan 20. But T-Mobile USA's new chief executive, Philipp Humm, is not expected to provide much detail about the situation at the meeting, said the sources.

One reason for the hold up is that T-Mobile USA is also weighing a deal with Harbinger-backed startup LightSquared for use of its spectrum for fourth generation (4G) high-speed wireless services.

"(Clearwire) is in active discussions. T-Mobile needs to get something done more broadly on their 4G strategy, and they are giving themselves until the end of the first quarter to have something basically done," said one of the sources. "That could be Clearwire, or maybe LightSquared. But it looks more like Clearwire."

The sources were not authorized to speak to the press.

A representative for T-Mobile USA declined to discuss the contents of Humm's planned presentation. Clearwire and Sprint both declined comment for the story.

Clearwire raised about $1.3 billion in debt late last year, giving it enough money to maintain operations for up to a year, according to one of the sources. But it needs more money for a network expansion to keep it competitive with bigger rivals.

EVENTUAL DEAL?

Clearwire, whose investors also include cable operators Comcast Corp (CMCSA.O) and Time Warner Cable (TWC.N), was set up in its current form through a 2008 transaction. Along with Sprint the cable companies rent space on Clearwire's network to sell high-speed services. Sprint, the No. 3 U.S. mobile service depends on Clearwire for its high-speed wireless strategy.

Relations between Clearwire and Sprint Nextel Corp (S.N) have hit some rocky ground recently over issues such as Clearwire's pursuit of a direct retail strategy and the amount it charges Sprint.

But Craig McCaw's departure as Clearwire's chairman at the end of December and the appointment of former chief executive officer, Ben Wolff as a director could pave the way for more constructive talks between the pair, some of the sources said.

"Ben (Wolff) works well with Sprint... there's a decent chance they can have meaningful discussions," said one of the sources who noted that Wolff, who is a lawyer by training, was instrumental in nailing the 2008 transaction.

Sprint has previously said that a merger between Sprint and Clearwire could be helpful, but that for now such a deal would cost too much. It would also be complicated by the fact that Clearwire has several other strategic investors.

But as Sprint gets stronger -- some analysts expect it to add contract customers for the full year 2011 on a net basis for the first time since 2006 -- one of the sources said it could move toward a Clearwire deal as soon as this year.

"Nothing is going to happen for 6 months or so," said one source referring to Sprint's next move. If Sprint's performance stabilizes, he said it could potentially enter negotiations for new terms for its Clearwire relationship.

It is also still debated whether Sprint will decide to close a deal with Clearwire and then go on to consummate an agreement of some sort with T-Mobile USA, the sources said. Combining interests of all three companies would ideally create a big operator with more clout to fight the U.S. market leaders Verizon Wireless and AT&T Inc (T.N). (Reporting by Nadia Damouni and Sinead Carew in New York; Editing by Bernard Orr)